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Well done, Mr Chidambaram - Views on News from Equitymaster
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  • Mar 27, 1998

    Well done, Mr Chidambaram

    It is the job of Finance Ministers to build a framework for the economy, a pathway for prosperity. Mr V. P. Singh built a few bricks in 1985, Dr Manmohan Singh did his bit in 1991, and Mr Chidambaram gave his touch in 1997. Think about it, without these 3 budgets India would be confined to a deep pit in the dark ages. Now we may not be in some bright light of perpetual happiness and prosperity but that is certainly within reach - politicians willing.

    The criticism of Mr Chidambaram is, in my view, uncalled for. While there are many things that the then Finance Ministers could have done (all three of them), one must concentrate on what they achieved. Collectively, the three budgets did many things but I would like to point out a few. Selling prices of farm products were increased by 30% to 50% and this increased the wealth in rural India and dramatically increased purchasing power in rural India. The budgets reduced the indirect taxes on many products, lowered their selling prices, and made them more affordable to a larger number of people across the country. The Finance Ministers lowered the taxation rates to levels that have now made India one of the lowest taxed economies in Asia and have discouraged people from keeping black money.

    Think back to 1990 - just eight years ago. Each time you wished to leave India, you needed to send an application to the Reserve Bank of India to take more than US$ 20 out of the country. Every Indian who traveled was forced to have an account or facility with his cousin, friend, or neighbourhood currency smuggler. Each time any of our big shot industrialists had to open a new business in India, they had to go to New Delhi and lobby for a licence. Sure, they did not mind because the money they paid for a licence had a built-in payment for blocking competition. And all this money was then recovered from the Indian consumer - you and me.

    Do any of us want those dark days of babu India? Yes, many things have gone wrong and many more things need to be done. The government stepped out of the economy too soon, and the načve private sector celebrated its independence and freedom to get into new businesses too soon. There should have been a more orderly transition, but that is only the benefit of hindsight. And if India is in a slow growth mode today, the fault lies as much with industry as it does with the government. What were our captains of industry doing when some of their colleagues were ripping the public in rigged IPO's, insider trading, and questionable mergers? Did even one of them have the guts to speak out and say it was wrong? No, they watched and many began me-too programmes to rip off the investors. Think of the tens of thousands of crores that have been taken from investors and put into over-priced, over-invoiced, and now useless assets. Most businessmen used this cheap IPO money to build cement plants, steel plants, textile plants (and gamble on real estate) - many of which are now unprofitable. Is that the Finance Minister's fault? Or is the industrial community to blame?

    Then of course we have the professional politicians - the curse of South Asia. Have they bothered to have any sort of social reform to lead the financial reform. The politicians should have set the course of how they picture our society and then asked the Finance Minister to frame the budgets to get us there in a prudent and financially sound manner. Did they bother to do anything worthwhile about population control or education? As usual they were busy fighting for their chairs and - in some cases - feathering their nests. Since these visionaries were too busy creating their own khandani wealth, the job of doing that fell to the three Finance Ministers.

    If the economy is slow today, it does not mean that we need to raise taxation rates or import tariffs. These are retrograde steps that entertain the economic wishes of certain constituents at the cost of many others. Many people may not be aware that the policies of the Federal Reserve (equivalent to the Reserve Bank of India) under the Bush administration saw a painful economy at the time of the 1990 elections. Just when the elections got over, the US economy recovered and did well for the next 6 years, supposedly under Clinton's guidance. Changes for which Bush was punished (by losing the election) have rewarded Clinton as the US economy surges to its strongest level in decades. I believe that the Indian eceonomy, too, is better off today than at any point in the past and, if industrial activity has slowed, that is the law of economics and the law of business cycles. Mr Chidambaram did not play dice or back a horse at the race course. Building economies is not satta on the stock exchange, but slow, steady building. Sometimes you don't see the complete structure till you stand back and pause. If the budget deficit today is 6.2%, I don't care as long as I know that an economic recovery will push it back to 4%. In the US, a strong economy has wiped out their budget deficit for now!

    I thank you, Mr Chidambaram, for lighting a few candles along the path. Just as two of your predecessors did at some other points in time. There were many silly things that were done - and are still being done. But I wish that there will be other Finance Ministers who, along the way, will help build on the road that has brought us here. And may the political leaders draw up a plan of where they wish this country to be.



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